Housing prices
in Australia are a very touchy subject –particularly for
those with a vested interest in ensuring the current housing
bubbles are propped up – irrespective of the cost to
taxpayers and the wider community.

While housing shared
equity schemes are a dumb idea in the first place – and
are only saleable to gullible politicians when housing
markets are grossly overcooked – they become a complete
disaster as housing bubbles deflate – as they inevitably
do. Indeed - Mr Joye states he assisted the last New Zealand
Government in getting this in place (I am only aware of this
from Mr Joye), which thankfully, the current Government is
throwing out.

Following the fanfare last year of the
announcement of it and widespread scorn by commentators
(including the writer of course) and the wider public –
just seven people applied.

There was much laughter in the
New Zealand Parliament when the announcement was made
recently by Hon Phil Heatley, Minister of Housing. The
remnants of the last Government were conspicuous by their
silence and obvious embarrassment.

Another flop. One of
many currently heading for the trash can.

In owning their
houses – Kiwis at least - were in no hurry whatsoever to
jump in bed with the Government (it was a very hard sell for
Ms Clark and her Housing Minister Ms Street). The
“fishhooks” were obvious to the New Zealand public, but
not the enthusiastic Mr Joye it would appear.

These
“housing shared equity schemes” had been thoroughly
discredited internationally well prior to this. The funny
thing was that Mr Joye on the Rismark website tells us that
he “invented” them. To those of us in the property
industry – we had always thought they had been around
since the time of Adam and Eve, when they “helped” their
kids in to houses.

Recently Mr Joye had a swipe at the
Demographia Survey, by plucking a table from a recent OECD
Report. This table suggested that Australian housing was not
particularly overcooked, based on the average affordability
of housing over the past thirty something years for a
numbers of countries. Housing has been overcooked in many
urban markets for a long time – so the OECD Report and Mr
Joye told us exactly nothing on this issue. And other issues
too it would appear. Roger Kerr of the New Zealand Business
Roundtable was extremely harsh in his criticism of many
aspects of this report.

But if there is one thing Mr Joye
has in abundance – it is persistence.

The Australian
Business Spectator with its obvious and commendable policy
of extreme tolerance in these matters, has allowed Mr Joye
to bring on board his anonymous pal aptly named L P Shadow,
to enlighten us all why Australian housing is ready to boom
again and we should all feel a lot happier about life in
general.

In wading my way through this torturous Joye and
his Shadows “sun rises in the west” litany of economic
logic (?) – I had imagined that the Demographia Survey was
to be spared this time. But alas - the long winded entry
concluded with just another nitpicking exercise of the
Demographia Survey.

The Annual Demographia International
Housing Affordability Survey is not “perfect” of course
– as I made clear to New Zealanders within a New Zealand
Herald article I wrote soon after the release of the 5th
Annual Survey January this year. Mr Joye needs to read the
end notes. He obviously hasn’t. But the Median Multiple
(median house price divided by gross annual median household
income) is “adequate”.

It happens to be recommended by
the United Nations and World Bank and is employed by Harvard
University with its Median Multiple Tables. Some of us
consider these to be reputable organizations.

The author
of the Preface of last year’s Demographia Survey was Dr
Donald Brash, former Governor of the New Zealand Reserve
Bank and of the National Party. This year - Shlomo Angel,
Adjunct Professor Princeton and New York Universities, co
architect of the World Bank and UN Urban Indicators
Programmes and author of the book Housing Policy Matters.
The Annual Demographia Surveys have widespread political
support, and too, the support of the New Zealand Planning
Institute.

Readers are encouraged to refer to my website
www.PerformanceUrbanPlanning.org for
further information with respect to these and other matters
pertaining to housing and local government.

For those of
us who have been around the property industry for a while
(and are aware of most of the tricks) – what we
particularly like about the “median multiple”
methodology, is that it is a “clean measure”.

“Clean” is not a word that creates a great deal of
joy in the hearts of those in the property industry keen to
sell things – irrespective of the costs.

Indeed – it
was the desperate need for a “clean measure”that
motivated me to chose the Median Multiple back in late 2004
and thankfully gain the support of my colleague Wendell Cox
of Demographia, Illinois, USA in getting these Annual
Demographia Surveys underway. Many in the property industry
were furious (a wonderful complement as I saw it). The last
thing they wanted to see happen, was evidence clearly set
out, illustrating how grossly overpriced housing is in
Australia and New Zealand.

Those old “mixed measure”
Housing Affordability Indexes –with house prices to income
and mortgage costs mixed and manipulated to suit market
conditions, where all the long suffering public was fed –
by a gullible media. The media – like the rest of us –
never understood them. That was the idea of course.
Victorian State economist Alun Breward on ABC Okhams Radio
back in 2004 tore these apart.

They should have been
thrown in to the trash heap of history long ago.

The
hugely important median multiple measure is an excellent
foundation for us to employ in dealing with the structural
issues, in restoring housing affordability in Australia and
New Zealand over a reasonable and realistic time
frame.

The New Zealand Government recognizes this (refer
my website) – and is committed to dealing with these real
structural issues. It is sad to see Australian Prime
Minister Rudd still “up the creek” on housing issues –
as he is pandering to his property industry pals in their
vain and clearly ill advised endeavours (the unnecessary and
hugely expensive First Home Owners Grant being just one
example) to protect their political and commercial skins.

Mr Rudd would be well advised to re read his Victory
Speech at the last election (he intended to govern in the
wider public interest - on that day at least) and the Sydney
Morning Herald Fitch Rating Research soon after. Voters in
Australia then came over to Labour in the expectation that
the new Government would ensure housing became more
affordable – and their mortgage loads would be lowered
substantially. Australians it would appear, had tired of
being “mortgage slaves” to the Howard Government (and
the housing bubble denier Costello).

The magic number is
“3”.

To rate as affordable, housing should not exceed
three times gross annual household earnings. And further to
this – purchasers should not load themselves up with any
more than 2.5 annual income of mortgage debt. Not the
exorbitant 4 to 5 times annual income New Zealanders and 5
to 7 times annual incomes Australian new home buyers are
conned in to mortgage loading themselves.

To illustrate
– through the recent era of “easy money” - Texas
housing stayed at around 2.5 times household earnings, while
the strangled basket case of California blew itself out to
in excess of 9 times annual household earnings with
mortgages through to a stratospheric 11 times –triggering
the global financial crisis.

Last year I studied housing
in the United States, with a good deal of the time spent in
Houston. This year’s Demographia Survey found Houston,
with a population of 5.8 million and population growth in
excess of 2% per year, had a Median Multiple of 2.9 (it is
currently about 2.5) where the median household income was
$US55,600 and median house price was $US160,200.

New
fringe starter homes of 235 square metres on 700 square
metre lots are being put in place all up for $US140,000
($US30,000 lot, $110,000 house construction). These comprise
double garage, 4 bedrooms, master with ensuite, separate
dining and ducted air conditioning. Manufactured housing of
160 square metres on 700 square metre lots for $US73,000
($US20,000 for the lot, $US53,000 for the manufactured
home).

No wonder there were so many young families on the
cruise ships heading for the Caribbean out of Galveston.
Young Houstonians prefer to spend their incomes this way –
rather than doing what their Australian and New Zealand
counterparts are forced to do – making charitable
donations to Banks.

Some of us don’t think these housing
bubbles are a clever idea and are rather keen to explore
ways to deal with them – something Mr Joye and his Shadow
are clearly not keen to do. My suggestions are set out
within the March 2008 paper “Getting performance urban
planning in place”.

It would make a pleasant change to
start seeing “performance” in the areas of housing and
local government.

But if there is one thing these housing
bubbles and their consequences have taught us – is that in
putting this as diplomatically as possible – there are
“knowledge gaps” (or is it chasms?) in the fields of
economics, planning and property appraisal / valuation. I
cover these issues within an article “Housing Bubbles and
Market Sense”.

Indeed - the economics profession should
shoulder a good share of the blame for these housing
bubbles. A little humility, at least, would be
appreciated.

Before these professionals can be of any use
in assisting their communities to get solutions in place, so
that housing affordability is restored – they will need to
better understand property markets and structural urban
economics.

We gain knowledge by reading and wisdom by
observing.

Go check out Houston and other affordable
North American urban markets Mr Joye (and stay away from
Washington DC – it will only confuse you more). Then tell
us what you have observed and learnt about properly
performing housing markets.

Meantime – since we are past
the “nitpicking” stage here in New Zealand – we will
focus on getting solutions in place. Then our pals the
Australians can copy us, again, in due course, as happened
with the Reserve Bank and Resource Management Acts – to
name just two of many policy
innovations.

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